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The Logit Equilibrium: A Perspective on Intuitive Behavioral Anomalies Author info | Abstract | Publisher info | Download info | Related research | Statistics Simon P. Anderson ()
Jacob K. Goeree ()
Charles A. Holt ()
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This paper considers a class of models in which rank-based payoffs are sensitive to small amounts of noise in decision making. Examples include auction, price-competition, coordination, and location games. Observed laboratory behavior in these games is often responsive to asymmetric costs associated with deviations from the Nash equilibrium. These payoff asymmetry effects are incorporated in an approach that introduces noisy behavior via probabilistic choice. In equilibrium, behavior is characterized by a probability distribution that satisfies a "rational expectations" consistency condition: the beliefs that determine player's expected payoffs match the decision distributions that arise from applying a logit probabilistic choice function to those expected payoffs. We prove existence of a unique, symmetric logit (quantal response) equilibrium and derive comparative statics results. The paper provides a unified perspective on many recent laboratory studies of games in which Nash equilibrium predictions are inconsistent with both intuition and experimental evidence.
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Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number
332.
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Length: 40 pages JEL Classification: C72, C92.
Date of creation: Nov 1999Date of revision:
Handle: RePEc:vir:virpap:332Contact details of provider: Web page: http://www.virginia.edu/economics/home.html
For technical questions regarding this item, or to correct its listing, contact: (Debby Stanford).
Keywords: logit equilibrium quantal response equilibrium probabilistic choice auctions. References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.:
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Charles A. Holt & Jacob K. Goeree, 1999.
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[Downloadable!] (restricted)
Other versions: Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 1998.
"A theoretical analysis of altruism and decision error in public goods games ,"
Journal of Public Economics ,
Elsevier, vol. 70(2), pages 297-323, November.
[Downloadable!] (restricted)
Goeree, Jacob K. & Holt, Charles A., 2000.
"Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games ,"
European Economic Review ,
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Other versions: Dufwenberg, Martin & Gneezy, Uri, 1998.
"Price Competition and Market Concentration: An Experimental Study ,"
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McKelvey Richard D. & Palfrey Thomas R., 1995.
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C. Monica Capra et al., 1999.
"Anomalous Behavior in a Traveler's Dilemma? ,"
American Economic Review ,
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Mookherjee Dilip & Sopher Barry, 1994.
"Learning Behavior in an Experimental Matching Pennies Game ,"
Games and Economic Behavior ,
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[Downloadable!] (restricted)
Jacob K. Goeree & Charles A. Holt & Susan K. Laury, 1999.
"Altruism and Noisy Behavior in One-Shot Public Goods Experiments ,"
Virginia Economics Online Papers
331, University of Virginia, Department of Economics.
[Downloadable!]
Palfrey, Thomas R. & Goeree, Jacob & Holt, Charles, 2000.
"Quantal Response Equilibrium and Overbidding in Private-value Auctions ,"
Working Papers
1073, California Institute of Technology, Division of the Humanities and Social Sciences.
[Downloadable!]
Other versions:
Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000.
"Quantal Response Equilibrium and Overbidding in Private-Value Auctions ,"
Virginia Economics Online Papers
345, University of Virginia, Department of Economics.
[Downloadable!] Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002.
"Quantal Response Equilibrium and Overbidding in Private-Value Auctions ,"
Journal of Economic Theory ,
Elsevier, vol. 104(1), pages 247-272, May.
[Downloadable!] (restricted) Selten, Reinhard, and Joachim Buchta, 1994.
"Experimental Sealed Bid First Price Auctions with Directly Observed Bid Functions ,"
Discussion Paper Serie B
270, University of Bonn, Germany.
Basu, Kaushik, 1994.
"The Traveler's Dilemma: Paradoxes of Rationality in Game Theory ,"
American Economic Review ,
American Economic Association, vol. 84(2), pages 391-95, May.
[Downloadable!] (restricted)
Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1998.
"Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction ,"
Journal of Political Economy ,
University of Chicago Press, vol. 106(4), pages 828-853, August.
[Downloadable!] (restricted)
Dufwenberg, M. & Gneezy, U., 1998.
"Price Competition and Market COncentration: An Experimental Study ,"
Papers
1998-08, Uppsala - Working Paper Series.
Goeree, Jacob K. & Holt, Charles A., 2005.
"An experimental study of costly coordination ,"
Games and Economic Behavior ,
Elsevier, vol. 51(2), pages 349-364, May.
[Downloadable!] (restricted)
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Susana Cabrera & C. Mónica Capra & Rosario Gómez, 2005.
"Introspection in one-shot traveler’s dilemma games ,"
Emory Economics
0504, Department of Economics, Emory University (Atlanta).
[Downloadable!]
Jim Engle-Warnick & Ed Hopkins, 2006.
"A Simple Test of Learning Theory? ,"
ESE Discussion Papers
153, Edinburgh School of Economics, University of Edinburgh.
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Other versions: Philip A. Haile & Ali Hortacsu & Grigory Kosenok, 0820.
"On the Empirical Content of Quantal Response Equilibrium ,"
Cowles Foundation Discussion Papers
1432R, Cowles Foundation, Yale University, revised Jun 0820.
[Downloadable!]
Other versions:
Philip A. Haile & Ali Hortacsu & Grigory Kosenok, 2003.
"On the Empirical Content of Quantal Response Equilibrium ,"
Levine's Bibliography
666156000000000215, UCLA Department of Economics.
[Downloadable!] Philip A. Haile & Ali Hortacsu & Grigory Kosenok, 2006.
"On the Empirical Content of Quantal Response Equilibrium ,"
Working Papers
w0076, Center for Economic and Financial Research (CEFIR).
[Downloadable!] Philip A. Haile & Ali Hortacsu & Grigory Kosenok, 2003.
"On the Empirical Content of Quantal Response Equilibrium ,"
Cowles Foundation Discussion Papers
1432, Cowles Foundation, Yale University.
[Downloadable!] Philip A. Haile & Ali Hortacsu & Grigory Kosenok, 2004.
"On the Empirical Content of Quantal Response Equilibrium ,"
Yale School of Management Working Papers
ysm421, Yale School of Management.
[Downloadable!] Philip A. Haile & Ali Hortaçsu & Grigory Kosenok, 2008.
"On the Empirical Content of Quantal Response Equilibrium ,"
American Economic Review ,
American Economic Association, vol. 98(1), pages 180-200, March.
C. Monica Capra & Jacob K. Goeree & Rosario Gomez & Charles A. Holt, 2000.
"Learning and Noisy Equilibrium Behavior in an Experimental Study of Imperfect Price Competition ,"
Virginia Economics Online Papers
336, University of Virginia, Department of Economics.
[Downloadable!]
Other versions: Tilman Becker & Michael Carter & Jörg Naeve, 2005.
"Experts Playing the Traveler's Dilemma ,"
Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim
252/2005, Department of Economics, University of Hohenheim, Germany.
[Downloadable!]
Mathias Erlei, 2003.
"Heterogeneous Social Preferences ,"
TUC Working Papers in Economics
0001, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal), revised Jun 2004.
[Downloadable!]
Other versions: C. Monica Capra & Susana Cabrera & Rosario Gómez, 2003.
"The Effects of Common Advice on One-shot Traveler’s Dilemma Games: Explaining Behavior through an Introspective Model with Errors ,"
Economic Working Papers at Centro de Estudios Andaluces
E2003/17, Centro de Estudios Andaluces.
[Downloadable!]
Michel Benaim & Josef Hofbauer & Ed Hopkins, 2006.
"Learning in Games with Unstable Equilibria ,"
Levine's Bibliography
321307000000000547, UCLA Department of Economics.
[Downloadable!]
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